As I noted in May, EPA’s recent proposed rule regarding backup generators would allow additional operations by such generators when used to assist in demand response. It’s a tricky issue, because diesel generators are not clean, and the aggregated emissions from a number of small, but uncontrolled diesel generators can be significant.

For now, based on the proposal, EPA has come down on the side of encouraging the demand response industry. Nonetheless, at a recent conference, both Gina McCarthy at EPA and Jon Wellinghoff, FERC Chairman, admitted that the issue was difficult. I particularly appreciated Wellinghoff’s remarks:

I’m not a fan of diesels. I don’t want you to leave here and think that. Certainly, we need to clean them up, and we need to secondly start moving to other backup generation. But there potentially is a bridge here, and we really don’t want to blow up the bridge unnecessarily without ensuring that we know [the data].

In other words, demand response is important. Building or making capital payments for large power plants to run only during peak demand does not make a lot of sense. In the short run, pure demand response isn’t sufficient. If allowing extended operation of backup generators for a few years is necessary to get the demand response industry off the ground, then so be it.

I think that Wellinghoff (and McCarthy and EPA) probably have this one right, but it will be a delicate balance. They need to provide the necessary incentives for demand response, without overly encouraging continued use of diesel backup generators. They also have to figure out what the long-term solution is that allows demand response to address peak load issues, without relying forever on diesel backup generators to make it work.